This week, it has been announced that Premiership clubs have voted unanimously in favour of lowering the level of the Premiership Rugby salary cap from the start of the 2021/2022 season. It has also been reported that Premiership Rugby (“PRL”) have been seeking to reduce players’ wages permanently by 25% across all Premiership clubs. The Rugby Players Association (the “RPA”) has voiced its opposition to any permanent pay cuts.
Of course, many Premiership players were asked to take a temporary 25% pay cut at the outset of the Coronavirus pandemic but, according to the RPA, there has been an “absolute disregard for the players” from the outset, and the process has been neither “collaborative” nor “transparent”. RPA Chairman, Mark Lambert, has said that unless “meaningful and genuine dialogue takes place urgently”, the players and clubs will be heading for a “significant legal dispute”.
This article will try to briefly explain the legal grounds on which Premiership players may be able to challenge (a) the attempt to impose a permanent pay cuts on all Premiership players; and (b) the decision by PRL to lower the level of the salary cap.
1. A Permanent Pay Cut for all Premiership Players?
The RPA says that “PRL have been seeking agreement to reduce players’ wages permanently by 25% across all PRL clubs”, and that this was “unanimously rejected by the Players’ Board”. PRL cannot unilaterally impose a pay cut and it is not even clear that this is something that the RPA would have authority to agree to on behalf of the players – although now Premiership clubs are saying they won’t deal with the RPA at all.
(a) Players’ Employment Rights
The starting position for any mooted pay cut is that players’ pay cannot be reduced without their consent. Pay cuts cannot be imposed unilaterally. If a player’s pay is cut without their consent, they may have claims for unlawful deduction from wages and/or constructive dismissal (discussed in greater depth here). The Daily Mail has reported that several clubs have told their players if they do not sign an inferior contract by June 18 they will be sacked.
A player faced with an attempt to unilaterally vary their salary that they do not want to accept will generally have three options:
(i) Refuse – if a player refuses to accept a pay cut, the club will then have to decide whether to pay the player the full contractual amount or dismiss the player. If the player is dismissed, they will likely be able to sue the club for wrongful dismissal, if not also unfair dismissal. Given that playing contracts are for a fixed term, players will likely be able to claim for the sums they were owed for the rest of their deal and, if the dismissal is found to be unfair, further compensation.
(ii) Resign – threatening a player with dismissal if they do not accept a pay cut, or imposing the pay cut without consent, will inevitably amount to a breach of the implied term of mutual trust and confidence between employees and their employer. The breakdown of mutual trust and confidence is always considered a repudiatory breach of contract and, thus, players would have the right to resign. This would allow them to leave the club on a free transfer (if they had somewhere else to go) and to claim for wrongful/unfair dismissal, as above.
(iii) Stand and Sue – players could choose to accept the pay cut but only under protest. This enables players to preserve their employment but to reserve their legal rights. The player would be entitled to treat the variation as a repudiatory breach, and claim wrongful/unfair dismissal, as above (Robinson v Tescom Corporation).
Importantly, players should not ‘do nothing’ in response to an attempted and unwanted variation, as this can be taken as implied consent. If a player is deemed to have impliedly consented to the variation, they will be unable to bring a claim.
If sums are deducted without their consent, players would also have a claim for unlawful deduction from wages under ss.13-27 of the Employment Rights Act 1996.
This issue is complicated by PRL’s decision to lower the salary cap from 2021/2022. It may be that clubs will have to reduce salaries to be able to comply with the new cap. However, the amended regulations allow existing contracts to only count for 75 per cent of their overall value within the salary cap for the 2021-22 season.
According to the Telegraph, the cut-off date for a contract to count as “existing” is June 18. Clubs are thus rushing to negotiate new deals, as this will allow them to operate with an additional 33% headroom in 2021-22, although the Telegraph suggests that “those savings are not being passed on to the players”. The report states that some players are being handed an ultimatum of accepting a 25 per cent pay cut on their current terms or agreeing a smaller cut on a longer-term deal.
Players ought to hold firm on this issue and act collectively. If the players stand together and refuse to be bullied, there is little the clubs can do. If players bend to the pressure from their club, they will be stuck – there is no remedy for entering a bad bargain.
(b) Can the RPA bind the Players?
The background to the RFU Standard Form Premiership Playing Contract states that:
Premier Rugby Limited (“PRL”) acting on behalf of all professional rugby clubs being shareholders of PRL has agreed with the Rugby Players Association (“the RPA”) to govern the relationship between professional rugby clubs and professional rugby players from time to time…
This does not amount to an express incorporation of any collective agreement between the RPA and PRL and, although such an incorporating term could be implied into players’ contracts, it is not clear that this would cover pay. Premiership salaries are ordinarily negotiated on an individual basis and so the RPA would likely need to have the players’ express authority to negotiate such changes on the players’ behalf.
Therefore, it is at least doubtful whether the RPA would have authority to accept a uniform 25% pay cut across the league and, thus, it is doubtful whether this is something PRL could procure by way of a collective agreement.
(c) A Breach of Competition Law?
If the decision to impose a uniform 25% pay cut does not amount to a collective agreement, it will not be excluded from the scope of Competition law following the Albany [1999] case. PRL’s actions may thus be susceptible to a challenge in Competition law.
UK Competition law is, for all intents and purposes, the same as EU Competition law with the exception that it is only concerned with trade in the UK. It is thus convenient to refer to Art.101 of the Treaty on the Functioning of the European Union (TFEU), which prohibits:
all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market
PRL is clearly an association of undertakings, and the decision to impose uniform pay cuts across the league may affect trade within the UK. Alternatively, it could be seen as an agreement between undertakings – the clubs. The question is thus whether the object or effect of such a decision is the prevention, restriction or distortion of competition.
By deciding to impose pay cuts uniformly across the league, PRL removes the possibility that some clubs will continue to pay their players in full because they can afford to, while others make cuts because they cannot. This reduces the chance that players will seek to move clubs during the crisis and thus limits their ability to compete for better contracts. It aims to retain a competitive sporting balance across the league and to protect the league’s financial stability.
Though the “object” of the decision is not necessarily anti-competitive, its effect arguably is. I would argue that PRL’s decision has the effect of preventing and/or restricting and/or distorting competition in the Premiership as between the clubs and between the players themselves.
The analysis of whether or not this is lawful is largely the same as the analysis of the lawfulness of the salary cap reduction, so will be discussed in more detail below.
(d) Restraint of Trade
In the alternative, if there is no valid collective agreement, players might be able to argue that the decision is in restraint of trade, as it limits their ability to trade freely – i.e. it prevents them from plying their trade in a free market. However, such restraints can be justified as being reasonably necessary/proportionate in pursuit of a legitimate business aim (Stevenage Borough FC v The Football League). Ensuring that the league remains competitively balanced is likely to be recognised as a legitimate business aim, but the onus would be on PRL to show it was reasonably necessary/proportionate.
PRL may well be able to do so, but the players would want to know the true financial picture, and would be entitled to ask whether any less restrictive measures could have been adopted – such as clubs seeking external investment, or a smaller pay cut being made. Indeed, if the salary cap is being reduced by c.20%, why is a 25% pay cut necessary? Players would want to inspect the situation at each club, as some may be less negatively affected than others and, on that basis, they may be able to argue that the blanket 25% reduction is not proportionate. The question players should be asking is whether this is a genuine attempt to avoid clubs going bust not only now, but in the foreseeable future.
The arguments would be largely the same as under Art.101 TFEU.
2. Lowering the Salary Cap
Of course, these salary discussions are taking place against the background of PRL’s decision to lower the level of the salary cap. On 10 June, PRL announced:
From 2021-22: • The senior ceiling will be £5m (down from £6.4m), and it will continue to be linked to the central growth of Premiership Rugby. • Home-grown player credits will be retained up to £600,000. • International and EPS player credits will be retained but limited to a maximum of £400,000… For any existing contracts that continue into the 2021-22 salary year, and beyond, their cap cost will be counted at 75% of their overall actual value, to sensibly manage the transition to new cap levels.
From 2022-23 • Excluded players will reduce to one player, except for where a club has a current contract in place for two excluded players. In that scenario, both players may remain as excluded players until the first of their current contracts expire. The decision to reduce from two excluded players to one is based on balancing financial sustainability while still attracting the best talent from around the world to the league.
From 2024-25 • The senior ceiling will return to a minimum of £6.4m.
Several points are worth making on this alone. Firstly, PRL state that the level of the cap will “continue to be linked to the central growth of Premiership Rugby” yet are already announcing in June 2020 that in four years’ time, the cap will return to £6.4m. The criteria for setting the level of the cap also remain unclear.
Secondly, if the cap is being cut by approximately 20% (c.£7.4m to £6m), why are players being asked to take a 25% pay cut?
Thirdly, the idea of counting existing contracts at only 75% of their value is ridiculous, as it essentially permits clubs to exceed the salary cap by 33%. I understand the attempt to “manage the transition” but it makes a mockery of the salary cap regulations – again.
Fourthly, PRL are removing one of the marquee players in 2022/23 – but you can have two marquee players if there are currently contracts in place to cover that period. This, too, is strange. Clubs could now put long-term arrangements in place to have two marquee players for the foreseeable future, so that they will be at an advantage from 2022/23 onwards. Even if they do not seek to exploit the rule, it is possible that some clubs will be at an advantage compared to others by virtue of having two marquee players already under long-term contracts.
Finally, although this change comes at a time of economic crisis, it also comes against the backdrop of other, incredibly restrictive changes to the salary cap regulations which place more onerous obligations on players. To ask them to accept less money but be subject to more extensive obligations sits very uncomfortably and would form an important part of the context to any legal challenge.
This episode is just the latest example of clubs meddling in the operation of the salary cap; something for which they were criticised heavily in the Myners Review (discussed here). It is incredibly disappointing to see that lessons have not been learned.
Again, it is the players who will lose out. A lower cap will supress wages across the league and may even damage the Premiership ‘product’ itself, which will have longer-term negative effects on players. The decision may be open to a legal challenge.
(a) A Breach of Competition Law?
The lowering of the salary cap amounts to either an agreement between undertakings or a decision by an association of undertakings which may affect trade within the UK, and also the EU internal market. The Art.101 prohibition may thus be engaged.
For the same reasons as above, it is arguable that lowering the salary cap will have the effect of restricting/distorting competition in the Premiership. Although the salary cap itself already places a limit on clubs’ ability to compete for players, the cap reduction tightens this restriction and makes it even harder for clubs to compete – the lower the level of the salary cap, the smaller the degree of variance that there is likely to be between club spending, and thus the less of an opportunity there will be for players to move clubs for a better deal.
It is my view, therefore, that this decision restricts competition in the market for player services between the clubs and between the players themselves, and also limits the ability for clubs to compete in a wider market for success-based sponsorship and other revenues – it limits clubs’ ability to invest in their own success. Moreover, it is more likely to limit the ability of Premiership clubs to compete on and off the field with clubs in European competitions (in breach of the Art.101 TFEU prohibition) than the c.£7.4m cap previously did.
To be unlawful, the effect of any restriction on competition must be “appreciable” (Commission Notice C 101/81) and must not be a proportionate means of achieving a legitimate objective (Meca-Medina [2006]). Evidence would be needed to show that the effect on the market for player services would be “appreciable”, though this is not a particularly high threshold.
Of course, in the PRL v Saracens [2019] case, it was found that the salary cap did not have an “appreciable adverse effect on competition” and was deemed not to breach Competition law. However, I submit that lowering the level of the cap is distinguishable, particularly when the effect on players is considered. Indeed, Professor Mark James has suggested that the legality of salary caps could become more of a “live issue” where they are considered them to be too low (“Sports Law”, p.266), and Beloff et al. also consider the level of the cap to be an important factor (“Sports Law”, p.112). Lowering the salary cap will be harder to justify.
In Saracens, the panel led by Lord Dyson dismissed the existence of a market for player services, finding that there was “no empirical evidence”. This is surprising, given he accepted that, in the absence of a cap, clubs would seek to “outbid each other to secure the best players”. Such a market surely exists, so should not be a bar to a player-led legal challenge.
The Saracens panel also held that there was no appreciable adverse effect on competition in Europe because Saracens’ victories in the European Champions Cup showed English clubs were still able to compete. However, we now know that Saracens broke the salary cap in two of the three years that they won the tournament and, in any event, lowering the salary cap will limit English clubs’ ability to compete further. There is no salary cap for Pro14 teams, and the TOP14 salary cap remains set at €11.3m (approximately £10.1m). The English cap will now be fixed at £6m (including credits). This is surely likely to result in an appreciable adverse effect on competition.
A proportionate means of achieving a legitimate objective?
Nonetheless, there is a “legitimate objective” to the decision. It aims to protect the Premiership’s financial stability and to maintain a competitive sporting balance in the league. These were accepted as legitimate objectives by the panel in Queen’s Park Rangers v English Football League [2018] and Bosman [1995] respectively. The key questions are whether reducing the salary cap is a proportionate way of ensuring financial stability and/or maintaining a competitive balance. Arguably, it may not be.
Firstly, does the lowering of the cap reflect the reduction in revenues of clubs across the league? It has been suggested by individuals involved in Premiership clubs that Covid-19 is giving clubs the chance to reflect on their spending and lower player wages, to curb the wage inflation seen over the past few years (e.g. Leicester Tigers’ Head of Recruitment on The Rugby Pod from 28:40). It may therefore be that clubs are lowering the cap disproportionately to any predicted fall in revenue because they feel it has been ‘too high’ for some time – even though they determined the previous level of the cap and agreed contracts with players on that basis. That this is the true motivation can be seen in the fact that the decision has been made now to make a reduction until 2024.
No Premiership club has folded with the previous salary cap level, so is reducing the cap beyond a small adjustment to reflect the impact of Covid-19 really proportionate to its aim of maintaining financial stability? The league was relatively financially stable already. The existence of the salary cap was deemed acceptable in PRL v Saracens as it curbed wage inflation, helping to prevent clubs from folding. The same justification is difficult to mount here; it is surely not the case that clubs would have to fold unless this 3-year 20% reduction is imposed.
Some clubs’ revenues may be worse affected than others – yet the lower cap is being imposed on all clubs. Have other, less restrictive measures been considered? A lesser reduction in player salaries, requiring struggling clubs to seek external investment and to look at other ways they can cut costs, including at board level would all be ways of ensuring competitive balance is not affected in spite of the economic crisis.
Alternatively, PRL could have considered imposing a minimum spend requirement, so that clubs would have to spend a certain amount in spite of the crisis. If owners were truly unable to meet their obligations, could they consider selling the club? Are there not others who would step in, to foot the bill? This measure would also maintain competitive balance and financial stability.
The salary cap reduction disincentivises clubs from seeking investment or strengthening their businesses at this time and allows clubs the luxury of knowing that their rivals are unlikely to be able to lure their players away – the same is true of the uniform pay cut decision. It is arguable that those clubs with greater aspirations and a willingness to continue investing are disproportionately affected by the decision to lower the cap rather than allowing individual clubs to determine what they can now afford.
This is particularly pertinent in the context of European competition. Though the previous cap level of c.£7.4m may have been a proportionate restriction as compared to the TOP14’s c£10.1m cap, or the likely level of actual spending in the Pro14, a cap of £6m is far more difficult to justify.
Lastly, the lowering of the cap has a disproportionate effect on players – ultimately, it is they who will lose out. Is it proportionate that players at, for example, Bristol and Exeter, should have their salaries significantly reduced because of the financial struggles of Worcester and Gloucester? It is one thing limiting players’ ability to earn more than they are currently earning in the name of maintaining competitive balance, but it is quite another to reduce their pay.
It is not clear why the burden of the club’s finances should fall so heavily upon the players – if some clubs have bitten off more than they can chew, why should players across the league be held responsible? Again, a small adjustment to reflect the impact of Covid-19 would not be disproportionate, but a long-term change of this scale arguably is. The implications on individual players and their families will be significant.
The “overall context” is also key (see Annex 1 to the Commission Staff Working Document “The EU and Sport: Background and Context” (SEC(2007) 935)). PRL has recently agreed to adopt all the recommendations of the Myners Review (discussed here), which recommends imposing significant restrictions on players, which will affect their earning capacity. The combined effect of that decision and the decision to lower the salary cap should be taken into account when considering the proportionality of the change.
To my mind, the anti-competitive effect is clear, and there is certainly an argument that the reduction goes beyond what would be proportionate, particularly at a time when so much is still unknown about the next few years. That said, regard would have to be had to the “margin of appreciation” given to sports governing bodies following Meca-Medina (referred to in Saracens), that allows them a degree of freedom in organising sporting competition.
Anti-competitive agreements are deemed void and unenforceable (Art.101(2)), thus, a successful challenge would see the new salary cap limit fall away.
(b) Restraint of Trade
Many of the same arguments can be made in the context of restraint of trade. Lowering the level of the cap places a restraint on players’ ability to ply their trade as professionals and will be more readily challengeable than the mere existence of the cap itself.
The question of whether the reduction is reasonably necessary/proportionate would involve considering the true financial state of the game as a result of Covid-19 and also the effect on players, as under Art.101 TFEU.
(c) A Breach of EU Law?
The lower salary cap might also be susceptible to an EU law challenge (which still applies to the UK under the Withdrawal Agreement), under Art.45 TFEU (free movement of workers). It could be argued that a lower salary cap amounts to a limitation on the free movement of workers within the EU internal market, as it will make finding employment in the Premiership more difficult – along similar lines to the Bosman case. Indeed, the homegrown player credits system could make it particularly difficult for non-UK EU citizens to find a job in the league.
Nonetheless, a prima facie indirect infringement of Art.45 like this can be justified if it is a proportionate means of achieving a legitimate aim. A similar analysis to above would therefore apply, and there would also be arguments about the importance of rewarding clubs for developing their own talent.
(d) A Right to be Consulted?
Lastly, the players might be able to argue that they had a right to be consulted before the decision to lower the cap was made, via the RPA. Without knowing the extent of any agreement between PRL and the RPA, the players could argue that they were owed a free-standing right to be consulted given the significant implications that this will have on their employment rights and opportunities.
The right to be heard typically applies in the context of sports disciplinary hearings but, as Professor Mark James has expressed, there is no strict list of rules with which sports governing bodies’ procedures must comply but, they are “under an obligation to act fairly in [their] dealings with those who are affected by its decisions”, following cases such as McInnes v Onslow-Fane [1978] (“Sports Law”, p.44). As Beloff et al. note, the right to fair treatment is “a right apparently arising independently of contract” and is “co-terminous with the right to fair treatment in the context of public law” (“Sports Law”, p.224).
PRL is a sports governing body, in relation to the Premiership, and so falls under these obligations of procedural fairness. Further, they would be subject to the ‘supervisory jurisdiction’ of the courts established in Bradley v Jockey Club [2004], at least in so far as they perform a regulatory role. Determining the level of the salary cap is one such regulatory feature, which clearly has the potential to significantly affect players.
In R (Moseley) v London Borough of Haringey [2014] UKSC 56, the Supreme Court affirmed that decision-makers may come under a duty to consult in appropriate circumstances, as a matter of procedural fairness, with Lord Reed stating that such a duty will arise “where there is a legitimate expectation of such consultation, usually arising from an interest which is held to be sufficient to found such an expectation”. I would argue that players have such an interest, given the impact the decision will have on their careers.
The Supreme Court considered the following criteria as informing the scope of that duty:
First, that consultation must be at a time when proposals are still at a formative stage. Second, that the proposer must give sufficient reasons for any proposal to permit of intelligent consideration and response. Third,… that adequate time must be given for consideration and response and, finally, fourth, that the product of consultation must be conscientiously taken into account in finalising any statutory proposal
The RPA have made it clear that there has been no consultation with players or their representatives. None of these steps have been followed. Thus, it might be able to use this argument to obtain an injunction against the lowering of the cap and/or a declaration that it is unlawful. Of course, it would have to be minded of the fact that, even if the players had been consulted, the outcome might have been the same, but they could try to present convincing evidence that such radical change was not truly necessary.
3. Conclusion
Recent decisions by PRL have rightly been met with hostility by the players. The Covid-19 crisis seems to have turned the clubs against them, and they are being asked to dig into their own pockets to get the clubs out of trouble. It is vital that players understand their legal rights, and are properly advised – independently of the clubs, PRL and the RFU.
The agreement between owners to permanently cut pay across the board by 25% may be legally actionable not only as a matter of employment law, but also in Competition law and restraint of trade. The lowering of the salary cap may be anti-competitive and a restraint of trade, on much the same principles. It is arguable that clubs are acting disproportionately to the challenges they face to un-do the salary increases they allowed to happen, to the detriment of players and those clubs with broader ambitions.
It may also be possible to argue that the lowering of the salary cap is contrary to EU law, and that the decision was made in breach of the players’ right to be consulted. These latter arguments are somewhat more speculative but are at the very least arguable.
It is difficult not to agree with RPA chairman, Mark Lambert: the stage seems set for a “significant legal dispute”.